New Bill makes sweeping changes to fire service levies

Monday 4 July 2016

Authors: David Friar and Morgan Powell

​​​​​​​​​Under the Fire Service Act, the New Zealand Fire Service Commission is funded by levies that are paid by insureds and collected by insurers or brokers. On 30 June 2016, the Government introduced the Fire and Emergency New Zealand Bill, which replaces the C​ommission with a new entity, Fire and Emergency New Zealand (FENZ). Of more significance for insurers and insureds, the Bill also substantially expands the basis on which fire service levies are calculated:

Service remains funded​ by levies

In its review of the Act, the Government accepted that insurance levies are “highly inefficient”, and that they discourage people from taking out appropriate levels of insurance. Despite this, the new Bill retains insurance levies as the primary means for funding FENZ.

The Bill also picks up on the Supreme Court’s recent judgment concerning the interpretation of the Fire Service Act. In that case, the Court described the Fire Service Commission’s service as “universal”, and said that the Act should therefore be “interpreted to enhance the universality of the levy”.1 The Bill likewise describes the levy as “universal”, saying that the levy means that “FENZ’s costs are generally shared among all who benefit from the potential to use FENZ’s services”.

However, FENZ will provide the same service to property owners, whether or not they are insured (and whatever level of insurance they take out). If universality is intended to be a key principle, then FENZ should be funded by all who benefit from its services – that is, the public – and not just by those who take out insurance. 

Extension to non-fire policies

Under the Bill, levies will be payable on non-fire material damage policies, in addition to fire material damage policies. This is a significant extension. The Government has said that this extension is justified because the Fire Service responds to a “growing number of non-fire related incidents” such as flooding, but only those with fire insurance pay for it.

However, non-fire material damage policies cover a wide range of perils to which the Fire Service does not respond. Indeed, the Government’s review of the Act recognises that a key reason for extending the levy to non-fire material damage policies is that this will “expand the levy base”.

Calculation of levy

The levy will be calculated by reference to the “express maximum limit” for which the property is insured. There will no longer be an option to pay the levy on the indemnity value of the property, if this is lower than the sum insured. Further, if there is no sum insured, then the levy will be calculated by reference to the maximum amount for which the property is insured. If the policy is a reinstatement policy, then the levy will be calculated by reference to the reinstatement value of the property. This can be contrasted to the current Act, which limits the levy to indemnity value.

Motor vehicles

The Bill extends the levy on motor vehicle insurance to include third party liability policies. This is a significant extension. In contrast to the rest of the Bill, which imposes levies on property insurance, this extension imposes the levy on liability insurance for the first time.​

Penalties

The penalty for incorrect payment of levies is significantly different under the Bill. The Bill provides for a scale when determining what penalty is payable. Where the levy has been underpaid, the penalty ranges from 20% to 100% of the levy shortfall, depending on the conduct of the insured.

General anti-avoidance provision

In contrast with the current Act, the Bill contains detailed anti-avoidance provisions. If an insurer or insured enters into an arrangement that has the effect of reducing any liability to pay the levy, that arrangement is void and FENZ may determine the levy payer’s liability “in a way that FENZ considers appropriate”.

However, as the Government observed in its review of the Act, anti-avoidance powers internationally are reserved to state taxation authorities. The Government could not find any example where an agency such as the Commission or FENZ had been given anti-avoidance powers. The Government concluded that it was arguable that giving FENZ such powers “would be an unprecedented and likely out-of-scale response to potential levy minimisation issues”. Despite this advice, the Bill gives FENZ these powers.

Disputes

The Bill introduces a dispute resolution scheme. However, the Bill also provides that if there is a dispute about the levy, the burden of proof is on the insurer or insured, rather than FENZ.​

Next steps

The Bill is scheduled to receive its first reading in Parliament later this week, and will then be referred to a Select Committee.


New Zealand Fire Service Commission v Insurance Brokers Association of New Zealand Incorporated [2015] NZSC 59.


Disclaimer

This publication is necessarily brief and general in nature. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.

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  • David Friar

    Partner Auckland
  • Morgan Powell

    Senior Solicitor
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